Used car Leasing

Used car Leasing
Used car Leasing

Used-car leasing has become more popular as the economy worsens. It seems to offer a less expensive way to drive a car than new-car buying or leasing, or even used-car buying. But is it all it seems?

The advantages of used-car leasing.

Leasing a used lease car is a quick way to be on the road immediately, and it's a cheaper alternative. Leasing a used car also has the advantage that you can get more car, for less money. 
Read more about the advantages of leasing an used car.

You avoid a new car’s rapid first-year depreciation
Used car prices are lower than new-car prices, for the same make/model
Late model used cars may have remaining manufacturer’s warranty
Compared to new-car leasing, used-car leasing is more complex. Let’s look at some of the reasons:

  • New cars have an established MSRP sticker price, on which future depreciation (lease residual value) is based; used cars do not
  • New cars have industry-established residual values; used cars do not
  • New cars often have manufacturer-sponsored lease deals and rebates; used cars do not
  • New cars come with a full manufacturer’s warranty; used cars do not
Let’s explain why these factors are important in car leasing.If you understand car leasing, you know that lease payments are based primarily on the difference between sale price and lease-end residual value. The better the residual, the lower the payment.For new cars, residuals are based on the manufacturer’s MSRP sticker price, which is the same for all cars of the same make/model with the same options and installed equipment.

However, for used cars, setting residuals is not so easy. There are no standard prices on which to base residuals. Condition and mileage can vary widely, even for vehicles of the same year, make, and model. Prices can be different in different parts of the country. Used car prices can change frequently due to varying supply and demand. Therefore, residual values for used-car leases tend to be more arbitrary and are difficult to evaluate.

Just as interest rates are generally higher for used car loans than new-car loan, so are money factors generally higher for used-car leases.

New-car leases come with full manufacturers’ warranties, which means a leasing consumer is protected for the life of his lease as long as he chooses a lease term (months) that is no longer than the length of the warranty. A late-model used car may come with some remaining warranty but usually not enough to cover a normal 3-year lease. Therefore, a used-car leaser should factor in the cost of an extended warranty to guard against paying for repairs to a car he doesn’t own.

Does this mean that leasing a used car is not a good idea?

Not necessarily. It is very possible to get a good deal on a used car lease, although a little difficult to evaluate.

The best way to evaluate a used car lease is to do a couple of comparisons. First, compare your lease payments to loan payments for the same vehicle, same terms (months), and same down payment, if any. Also compare your used-car lease payments to lease payments for a new car of the same make and model with comparable equipment. In both cases, if your used-car lease payments are not significantly less than either of the two comparisons, it might not be good deal.